The value of the so-called cryptocurrency market, according to experts, has one intrinsic driver: human psychology.
This psychological factor driving the cryptocurrency market can be broken into two separate vehicles.
The first is the fear of missing out, colloquially known as FOMO. When the media gleefully and unabashedly profiles 20-somethings who’ve made hundreds of millions of dollars investing in Bitcoin, people are driven to invest based purely on emotion.
“When something is going up so much, the fear of missing out drives investment—you don’t want to miss out on making money,” said Swedish psychologist Anne Grefberg, who may very well be the world’s first “Bitcoin Psychologist.” “And of course, people want to avoid that feeling of being the stupid person that didn’t do it.”
The second is the simple fact that the majority of people—80 percent, according to Grefberg—think they’re smarter than the average person.
“A lot of us feel that we are smarter than most people, and therefore can make better decisions about investments and whatnot,” said Grefberg. “But that’s not true. If you think about it, most of us are averagely smart and do more decision making with emotions than with our IQ.”
At first, according to Grefberg, investing in cryptocurrencies “was something people didn’t want as much because they didn’t understand it. It was for the people who were inside of it.”
It’s this mystique clouding cryptocurrencies that play on people’s psychological yearning to be seen as more intelligent than everyone else, according to Grefberg.
“The traditional stock market is something you can feel you have control over,” said Grefberg. On the other hand, the cryptocurrency market is especially fickle—with astronomical peaks and flat-lining declines occurring within mere hours of one another.
So, the thinking goes, if you can successfully invest in Bitcoin and other cryptocurrencies, you can prove you’re indeed smarter than the average person who stayed away from the market.
The problem, according to Grefberg, is that this type of emotions-based investing will lead to the implosion of the cryptocurrency bubble that has built up.
“With the emotions that go into, when you go and buy it because of emotional aspects, that is what’s causing the bubble. It’s not analysis; it’s not really thinking rationally about the investments,” Grefberg said.
Summing it up, though, Grefberg said: “For the average person, you can do smarter things than invest in Bitcoin.”
The History of Cryptocurrency
The cryptocurrency rocket first lifted off back in late 2008, when Satoshi Nakamoto, virtually unheard of beforehand, announced the creation of Bitcoin, a decentralized digital cash system.
In the decade since, dozens of other similar currencies were created, creating the cryptocurrency market.
Here are some highlights of the best-known cryptocurrencies:
Value at start of 2017: $973
Value at the end of 2017: $14,670
Current Value: $9,945
Known for: Extreme volatility, marked by a 40% dip between mid-December and January
Value at start of 2017: $4.51
Value at the end of 2017: $232
Current Value: $213
Known for: More stable than Bitcoin; once referred to as the “silver to Bitcoin’s gold.”
Value at start of 2017: $8
Value at the end of 2017: $756
Current Value: $849
Known for: a market capitalization of $41.4 billion, second after Bitcoin among all cryptocurrencies.
Value at start of 2017: $48
Value at the end of 2017: $505
Current Value: $434
Known for: allows for content to be encrypted
Value at start of 2017: $11
Value at the end of 2017: $1,051
Current Value: $670
Known for: a more secretive version of Bitcoin.